Building Reliable Trading Systems: Tradable Strategies That Perform As They Backtest and Meet Your Risk-Reward Goals

Overview

A tradable strategy is one that fits your own risk-reward goalsand trades as well in real time as it performs in adevelopment backtest. While it's not easy to create a tradablestrategy, due to pitfalls ranging from excessive curve-fitting togreed, if done the right way, you can achieve a realistic level ofsuccess.

Nobody understands this better than author Keith Fitschen—athought leader in trading system development whose most popularsystem, Aberration, has been named "One of ...

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Overview

A tradable strategy is one that fits your own risk-reward goalsand trades as well in real time as it performs in adevelopment backtest. While it's not easy to create a tradablestrategy, due to pitfalls ranging from excessive curve-fitting togreed, if done the right way, you can achieve a realistic level ofsuccess.

Nobody understands this better than author Keith Fitschen—athought leader in trading system development whose most popularsystem, Aberration, has been named "One of the Top Ten TradingSystems of All Time" by Futures Truth. For more thantwenty-five years, Fitschen has developed and actively traded hisproven systems, and now he shares his extensive experience in thisfield with you.

Engaging and accessible, Building Reliable TradingSystems opens with a practical look at exactly what isachievable with a trading strategy. This includes documentedperformance from some of the best money managers in the world overthe last five years, metrics that best characterize a tradingstrategy's performance, and a set of questions to help you definewhat would constitute a "tradable strategy" according to yourpersonal risk-taking tolerance. It also addresses one of thebiggest problems in developing astrategy—curve-fitting—and presents a unique methodologyknown as "Build, Rebuild, and Compare," or BRAC, that can be usedto determine the degree of curve-fitting in your strategydevelopment.

With this information in hand, Fitschen moves on to outline twotradable systems: one a short-term scalping system for stocks, andthe other a mid-term trend-following strategy for commodities.Entries, exits, and trading filters are discussed as these systemsare developed. By the end of the process, both are "tradable" asis, but in order to tailor them to a range of risk-rewardprofiles—from large stock and commodity accounts tosmall—you'll be introduced to some essential money managementtechniques. Fitschen also develops a money management overlay totrade the stock and commodity strategies together, which can yielda trading solution that is better than either alone.

And for those who want even more detail about the strategiesdeveloped in this book, the trades for both systems can be found onwww.keithstrading.com. At the website, you can input your user nameand password to find the TradeStation Easy Language code and dailysignals for them.

Written with the serious trader in mind, Building ReliableTrading Systems contains information that you'll behard-pressed to find elsewhere—from BRAC tobar-scoring—and will put you in a better position to generaterealistic trading returns over time.

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Product Details

  • ISBN-13: 9781118528747
  • Publisher: Wiley
  • Publication date: 4/29/2013
  • Series: Wiley Trading Series, #620
  • Edition number: 1
  • Pages: 304
  • Product dimensions: 9.00 (w) x 6.20 (h) x 1.30 (d)

Meet the Author

KEITH FITSCHEN has been developing technical tradingsystems for the futures markets for over twenty-five years and hasactively traded his systems during that time. In 1986, he developedAberration, one of the most successful mechanical systems ever. Itwas commercially released in 1993 and four times has been named"One of the Top Ten Trading Systems of All Time" by FuturesTruth. Fitschen recently developed a stock-trading system thatprofits in both bull and bear markets. He has spoken at numeroustechnical conferences and workshops, and hosts seminars across thecountry each year. Fitschen is the President of TradeSystem, Inc.,and provides trading system information on his website:www.keithstrading.com.

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Table of Contents

Preface vii

Chapter 1 What Is a “Tradeable Strategy?” 1

Chapter 2 Developing a Strategy So it Trades Like it Back-Tests7

Chapter 3 Find the Path of Least Resistance in the Market YouWant to Trade 31

Chapter 4 Trading System Elements: Entries 45

Chapter 5 Trading System Elements: Exits 65

Chapter 6 Trading System Elements: Filters 89

Chapter 7 Why You Should Include Money Management Feedback inYour System Development 107

Chapter 8 Bar-Scoring: A New Trading Approach 119

Chapter 9 Avoid Being Swayed by the “Well-ChosenExample” 133

Chapter 10 Trading Lore 153

Chapter 11 Introduction to Money Management 175

Chapter 12 Traditional Money Management Techniques for SmallAccounts: Commodities 191

Chapter 13 Traditional Money Management Techniques for SmallAccounts: Stock Strategy 215

Chapter 14 Traditional Money Management Techniques for LargeAccounts: Commodities 221

Chapter 15 Traditional Money Management Techniques for LargeAccounts: Stocks 233

Chapter 16 Trading the Stock and Commodity Strategies Together241

Appendix A Understanding the Formulas 245

Appendix B Understanding Futures 251

Appendix C Understanding Continuous Contracts 265

Appendix D More Curve-Fitting Examples 273

Index 277

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